Political environment affects the European companies but as government is stable in Europe, the brewing industries can easily work if they follow a certain approach while keeping the government system in mind.
In Europe taxes, duty rates and VAT are higher on products as compared to UK and France, so the companies should consider small and under developed nations where taxes are low.
In Europe there was a governmental pressure of eliminating the agricultural subsidies that can lead to a change in the agricultural base. Brewing firms should understand this change and be ready with differential pricing schemes which can complement this change in agriculture.
In Europe, most economies have a sustained growth rate of above 8 %. This shows that there is huge scope for industries to grow.
European markets were also affected by 9/11 attack which in turn affected the tourism industry and at the same time, global recession also affect the whole European market.
People invest a big part of money for their entertainment and fun. Very least part of their income goes for alcohol consumption as they are becoming more educated about health (The European Brewing Industry, 1999).
Europe had nine out of ten highest median populations in 2005. So health issues were a big concern unlike the youth population of India and China etc. (Demographics of Europe).
The younger generation of population had a changed lifestyle and this turn have impacted European markets because of the smoking and poor nutrition habits (Ageing Population and Lifestyle Changes Drive Demand for Orthopaedic Biomaterials in Europe). These kinds of awareness issues will impact the sale of breweries in European market to the younger generation.
Most of the retail companies are keeping beer in their stores because of the family shopping is done through retails.
The customer interest has changed as they are more attracted with flavoured Beer and willing to taste new brands.
With the help of technology new and more efficient ways are open for the production of beer, assisting in achieving economies of scale (European Brewing Industry, 1999).
Alcohol related advertisements have been restricted by European Union
Consumption of drinking alcohol has also been affected by strict law of drinking and driving and domestic violence as awareness and different rules have been set up to stop this.
W H O has planned to increase tax as well as advertising ban for alcohol products and proposed breathe testing of drivers. It has given this model to EU for implement as physician advice this model is estimated to cost 1.3 billion Euros for implementation. (Institute of Alcohol Studies, 2009).
WHO estimated that using by this model disability and premature death could be avoided by 1.4million (Institute of Alcohol Studies, 2009).
EU’s main priority is toward health problems and also concentrating on Climate change and preserving biodiversity (Europa, 2010)
20% of emissions and 20 % of total energy consumption has planned to be reduced by EU by the year 2020 (Europa, 2010).
Eco- friendly products which are energy efficient are being put up for promotion by the commission (Europa, 2010).
ANALYSIS BASED ON PORTOR’S FIVE FORCES MODEL
THREAT FROM SUBSTITUTE PRODUCT
The threat from various substitutes is very high for this (brewing) industry. As many other premium brands exports wines, beer etc into the European market the market share of the brewing industry is dropping down. Their profits were eaten up by such premium products that captured the European market. Thereby the brewing industry’s product consumption reduced gradually. Thus the European (brewing) industry faces a huge challenge in terms of competition. Many other products such as soft drinks, fruit juices as well as various health drink.
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BARGAINING POWER OF SUPPLIERS
The concentration of suppliers in Europe is very high. The existing suppliers are very dominant and powerful in this industry and therefore the cost of switching would be very high. Suppliers play a major role within the brewing industry as packaging is a concern to the industry. Forward integration by various suppliers is possible as well. The customers are mainly fragmented and the suppliers are getting more and more concentrated due to which their bargaining power is very high.
BARGAINING POWER OF CLIENT OR PURCHASERS
The government attentiveness not in favour of alcohol had created the revolting action against Europe brewing industry. The customer became more aware and health conscious and instead of coffee preferred drinking beer at their homes. The procurement of beer’s from off-trade suppliers went up, 1/5th of the beer was sold through off-trade sellers such as retailers, they made the most of their profits by obtaining beers in large volumes from the brewage companies. In addition, customer demand for pioneering and new beers products and wines variably increased. The import of out of the ordinary and exotic beers also increased due to its rise in demand. The declining demand of conventional beers had strained many companies to struggle for cost restraint and brand strengthening. Therefore, the bargaining power of Customers got elevated as there were many alternatives available against the conventional beers.
THREAT OF THE ENTRANCE OF NEW COMPETITORS
The European Brewery trade is a fully-grown industry. The danger posed to new entry in this business doesn’t look too exact. A new corporation will acquire elevated capital investment to go into this market. Furthermore, the extent and range for product development will be very small amount, which will further direct it to lack of pioneering products which the mature marketplace demands. In addition, retail corporations entered the market through private-tag which will not influence the existing brewing companies up to a great extent as it is the unbranded product. Therefore, the market appreciation and escalation is low down, there is a significant exit barrier and the marketplace is also undifferentiated so the danger of new competitors is low.
CONCENTRATION OF COMPETITIVE RIVALRY
The rivalry in the European market is elevated. As mentioned earlier the market growth is negligible and there is high exit obstruction. Consequently, companies depend on acquisitions, licensing and strategic coalitions for growth. Furthermore, the fierce and violent external and internal competition has strained specialized firms to augment their efficiency, cost containment and introduce innovative products. The chain of acquisitions by Brewing companies shows the climb of oligopoly market in the European Brewing industry. Therefore, the concentration of competitive rivalry is high.
IMPACT OF THE TRENDS ON OTHER COMPANIES
HEINEKEN (THE NETHERLANDS)
About The Company:
Largest Brewery in Europe
Business Model based on acquiring local firms to present its brand in untapped markets.
Additionally to the government’s campaign of running an awareness program, the most important reason for European population to get more health conscious was the age factor. A major part of the population being on the older side, and hence Heineken is following a strategy to mainly focus on market where majority of the population was of a lower age group.
SCOTTISH AND NEWCASTLE (UK)
About The Company:
4th largest Brewing Company in the European Market
Leaders in major markets such as France, Russia, Europe
Concentration of the production of innovative and premium beers.
Present market state projects that brewery market has matured in European Region. The company works on the principle of differentiation which is achieved through introduction of premium beers as people tend to have a biased outlook towards premium beers. Up against the given fact of differentiation, its major markets are either saturated or have started declining, which may lead to a lower market share for them.
ROYAL GROLSCH (THE NETHERLANDS)
About The Company:
Established in 1615, it is a company of small and medium enterprises category
Key products include New Flavoured beers as well as its flagship product “Premium Lager”
The fact that 50% of the sales of the company’s sales come from exporting their product and the same time, introduction of their flavoured beer can assist in sales increment in the foreign markets where the economies have not saturated. Having acquired the rights of Sales and Distribution of the US based Miller brand for Netherlands and their new bottling processes; they may be able to generate revenues through the sales. Centralization of units will also lead to achieving economies of scale.
About The Company:
Outcome of the merger of InterBrew an AmBev in 2004
Largest Brewery company in the World
The company has reached to top position by marrying strong brand value and increased efficiency. Technological innovations will assist them in increasing the efficiency levels to a greater extent. Having a number of units and the seeing the magnitude of the organization, common practices may be exchanged for effective and efficient production. Having a centralized strategy, they will also be able to bring down the price per unit considering the economies of scale to take control.
STRENGTH AND WEAKNESS OF EACH COMPANY
HEINEKEN (THE NETHERLANDS)
Presence in Asia Pacific and American Sub-Continent.
Licensing approach helps saves establishment overheads. Additionally, the licensee companies are familiar to the local markets as well as demand supply chain.
Bypass legal restriction as Licensee in operating the company.
Shared technology and expertise would help both licensor and licensee.
Disclosing company’s core competency may prove to be fatal.
Capital usage is limited by several factors including government laws.
Full market control in the host environment not ensured through licensing.
Tariffs of different countries play an important role in reducing export costs.
GROLSCH (THE NETHERLANDS)
Exports and Licensing are both an integral part of the Business strategy.
Having a centralized manufacturing unit will raise the amount of efficiency and volumes.
Innovation and product branding.
Export involves an increased cost of transportation, therefore in turn increasing the cost price.
Biggest Brewing facility having a high production capacity.
Market leadership in 20+ countries.
Unified purchase model involving the usage of Media and I.T.
Seeing the extent of the company’s magnitude, the production efficiency does not reflect.
Information sharing may lead to information leak/loss.
Popularity of brand extends up to a defined range.
SCOTTISH AND NEWCASTLE (UK)
4th Largest market share in Europe combined with market leadership in UK, Russia and France.
Licensing model is used to enter a host country through investment with local players.
Biggest strength is the familiar brands.
No effective promotion schedule and plan
Brand is not as visible compared to other players